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Bills ask mo. legislators to choose: tobacco settlement bonanza or cheap cigarettes : news
JEFFERSON CITY Missouri is losing almost $70 million in tobacco settlement funds this year, money that Senate Appropriations Chairman Kurt Schaefer says could have gone to seniors, public schools or state building projects.
And that, he warned his colleagues, is the tip of the iceberg.
The state could lose as much as $2 billion over the next decade, according to Schaefer, R Columbia, and Attorney General Chris Koster s general counsel, Joan Gummels.
They were making a pitch to the Senate Appropriations Committee for Schaefer s proposal to eliminate a pricing advantage enjoyed in Missouri by small cigarette makers.
Missouri was among 46 states that settled a case in 1998 with major tobacco companies, including the parent companies of R.J. Reynolds and Philip Morris. The companies agreed to make payments to the states to cover the damage their products had caused to smokers health. Missouri has pulled in more than $2.1 billion from the settlement.
But that money is in jeopardy, in part, because Missouri is the only one of the 46 states that has not passed a law that would keep smaller cigarette manufacturers from enjoying a competitive advantage.
The smaller companies are required to pay money into an escrow fund, but in an unintended result, they get nearly all their money back if they concentrate their sales in a few states. Only Missouri has refused to prevent the release of the money.
As a result, value brand cigarettes such as Edgefield or Decade are about 60 cents per pack cheaper in Missouri than the industry giants lowest price brands.
Schaefer s bill would require Little Tobacco to pay as much per cigarette as Big Tobacco pays. And while this is the fourth year he has filed the bill, this year is different, Schaefer said, because the consequences of not fixing the escrow fund are now clear.
An arbitration panel decided last fall that Missouri must forfeit $69 million of the roughly $130 million that the state had expected to receive from the settlement this year. The money had already been budgeted to help pay for Medicaid, early childhood education and other services. Gov. Jay Nixon has asked the Legislature to plug the budget hole with state general revenue.
The smaller tobacco companies, such as Cheyenne International of Grover, N.C., and Xcaliber International Ltd. of Pryor, Okla., say they aren t to blame for the arbitration award and making them pay more wouldn t be fair.
What you re being asked to do today is to go punch Little Tobacco in the face so you ll have the opportunity for Big Tobacco to take money out of your wallet, Jefferson City attorney Chuck Hatfield told the House Budget Committee, which also held a public hearing on the issue Wednesday.
Hatfield is an attorney for Cheyenne, which produces Decade cigarettes. He also was chief of staff for Nixon when Nixon was attorney general and the tobacco settlement was negotiated.
On the other side, former Missouri Supreme Court Chief Justice William Ray Price Jr., who now works for the St. Louis law firm of Armstrong Teasdale, spoke on behalf of R.J. Reynolds.
You can talk all you want about the arbitration decision being wrong but it s over, it s done, he said. And you are going to lose much, much more in the years to come…. How do you explain to the people of Missouri that you re giving up $70 million to $140 million a year, you re giving that up because you want to favor one group of tobacco manufacturers with a $6 a carton market advantage so their shareholders can make more money? Price asked.
Some states have settled the disputes over back payments, but we can t get near the pile of money because we don t have our ticket, which is the tougher escrow requirement, said Rep. Chris Kelly, D Columbia, a co sponsor of the House bill.
Schaefer said that unless we want to go back and take ourselves out of the master settlement, we have an obligation to do what the settlement requires us to do.
Neither the House nor the Senate committee voted on the bills.
Schaefer s bill is SB820. The House bill is HB1242.